Floating interest rates a must for economic stability

The government should get rid of its mentality of fixing rates for any sector, as the bank interest and forex exchange rates should be floating and there should not be any floor price in the stock market, economists said yesterday.

They spoke at a webinar on the "Reserve crisis and price hike of food: a way forward, Bangladesh perspective", hosted by the Economic Development Research Organisation (EDRO), an independent research organisation.

The interest rate should be floating and a realistic policy should be taken so that the country can easily handle the current macroeconomic challenges, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The supply chain has improved to some extent thanks to the price fall of some commodities, but the government is yet take any policy to utilise the benefit, the economist said at the webinar.

Bangladesh Bank had kept the interest rate fixed artificially for many years, creating an additional pressure on the country's foreign exchange reserve in the long run, Mansur said.

Everyone knows that it is a must now to raise the interest rate and tighten the monetary policies to tackle the ongoing rising inflation, he said.

But the Bangladesh Bank has kept the interest rate fixed at 9 per cent, which will not bring any good results, he added.

The government still thinks that it can achieve a 7.5 per cent growth in gross domestic product, but it is not possible at a time when raw materials import has reduced by around 33 per cent amid spiralling inflation and falling savings and deposits, he said.

The country's production has also got disrupted, causing a fall in revenue collection growth also, he said.

If the government cannot take strong policies now, the inflation will continue to remain at the higher level, causing more sufferings for the low-income people, said Mansur.

Bangladesh had a comfortable foreign exchange reserve, he said.

Although the forex reserve is now on a declining trend, but the country still has enough to pay three months' import bills and it is still better than that of Pakistan's or Sri Lanka's, the economist said.

Hikes in prices of commodities, including oil and gas, are putting an extra pressure on the low- and middle-income consumers, said Suresh Babu, head of capacity strengthening and senior research fellow at the International Food Policy Research Institute.

He suggested taking adaptation and mitigation measures to tackle any further emergencies, build resilience and develop recovery plans to cope with shocks and to ensure macroeconomic stability and inflation management.

IKM Mokhtarul Wadud, assistant professor of the University of Sydney; Ahsan Habib, senior reporter at The Daily Star and Helal Ahmmed Jony, research associate of EDRO, also spoke at the event chaired by Md Tanjil Hossain, executive director of EDRO.